Less can often be more when building customer loyalty

Customers are arguably the most important ‘asset’ of your business. Let’s face it, without them you don’t have a business.

Businesses have two basic choices when it comes to customers. 1. Get (the right) new customers, and 2. Get those customers to love you enough to keep buying from you and encourage others to do the same.

Did you know that finding new customer can cost six to seven times more than retaining an existing one?

Finding ways to keep in touch with your customers and build loyalty is therefore critical and depending on your business could range from sending a Christmas card once a year to a sophisticated loyalty or account management program.

Before you rush off and put in place an expensive or time-consuming loyalty or retention program though, think about it. Do you really know what your loyal customers value?

The less-is-better effect

Imagine that you independently give two friends of similar taste a gift each and that one gift is more expensive than the other. Is it possible that the friend receiving the less expensive gift considers you to be more generous than the friend receiving the more expensive gift?

Yes. Less can be more. In an experiment on this scenario conducted by Professor Christopher Hsee, a behavioural science and marketing expert at the University of Chicago Graduate School of Business, the gift of an expensive $45 scarf to one friend was perceived to be more generous than a cheap $55 coat.

Why is this important?

Ok, so you might be thinking “this might save me $10 a Christmas time, but what does this have to do with my business?”

Well two things: 1. Perceived value and, 2. Understanding what value is to those friends. Those two friends could be your customers!

In your loyalty or retention program are you giving your customers the equivalent of a $55 coat when you could be giving them a $45 scarf, which they would value more and would save you money at the same time.